KeyPublicPolicyDevelopmentsAroundtheWorld

What Next for Trump and Africa?

In late December, the Trump Administration released the “National Security Strategy of the United States of America.” The nearly 70 page document lays out the foreign policy priorities of the current Administration in both thematic and regional approaches. At the time of its release, the press focused on the strategy’s emphasis on Russia and China, and the proposed policies towards these “revisionist powers.” But, there was minimal coverage on what this strategy had to say about Africa.
Nevertheless, President Trump’s recent derogatory remarks about Africans and Haitians, which he denies making, has sparked a controversy that has overshadowed the strategy as it pertains to Africa. The question is whether the Trump administration will be able to pursue aspects of the National Security Strategy (NSS) as it relates to Africa in hopes of reconstituting a “respectful engagement” that is elemental to advancing U.S. interests in the region. As the Administration contemplates its next steps in Africa, it is worth considering what the NSS suggests as it relates to the key issues of trade, corruption, and development finance and the timing of its implementation.Trade

On the trade front, there is a clear theme in the strategy of “promot[ing] reciprocal economic relationships” (emphasis added) throughout the strategy. While there is no mention of how this strategy will be applied to Africa specifically, the current non-reciprocal trade framework of the African Growth and Opportunity Act (AGOA) was not designed to be permanent. It is unclear what is next when AGOA expires in 2025, but establishing a reciprocal trade framework is a logical progression and in line with the strategy’s goals. The Administration could transition to reciprocal trade agreements with individual countries and/or regional bodies that take into account capacity and socioeconomic levels by putting the eligible tariffs lines on a sliding scale and increasing the number of lines in which there would be reciprocity over time. This new framework would enhance the ability of the U.S. to compete against the various European Partnership Agreements in place throughout the continent. The strategy outlines that “fair and reciprocal trade, investments, and exchanges of knowledge…are necessary to succeed in today’s competitive geopolitical environment.” If the U.S. pursues a two-way trade platform between the U.S. and African markets, it will surely help American companies down the road.

Importantly, the NSS discusses “economic integration” in Africa, a priority that the continent’s leaders and regional bodies have been trying to address for some time. In comparison to other regions, Africa has the lowest level of intra-regional trade, at just 18% (Europe, 69%; Asia, 52%; North America, 50%). There are efforts underway, via the Continental Free Trade Agreement (CFTA) and the Tripartite Free Trade Area (TFTA), that could bolster intra-Africa trade. A cost-effective action the Trump Administration could take to support Africa’s economic integration would be providing trade facilitation assistance to the continent’s regional bodies as they attempt to address the intra-regional trade gap.

Corruption

Combatting corruption is mentioned both thematically and in the Africa section of the strategy. The Administration asserts that tackling corruption around the world will help American companies “compete fairly in transparent business climates.” Tackling corruption in Africa would be a boon for the continent’s economies as well. Estimates put the annual global cost of bribery at around $1.5 to $2 trillion – roughly 2% of global GDP.

Opaque business environments and outsized political and corruption risks have depressed African markets’ full economic potential. Facing stiff competition from emerging markets in Latin America and South East Asia, African governments must make sure their commercial climate remains attractive.

The Administration appears willing to put some muscle behind addressing graft and supporting governments looking to counter it. The strategy states that “using our economic and diplomatic tools, the United States will continue to target corrupt foreign officials and work with countries to improve their ability to fight corruption.” Trend lines indicate that some African governments and their electorates are not only recognizing the adverse impacts of corruption, but are willing to support policies and candidates that seek to tackle it head on – Angola and South Africa are recent examples of this trend. African governments looking to counter corruption should recognize the Trump Administration’s heightened interest in this issue and solicit readily available capacity building programs housed primarily in the State Department’s Office of Anti-Crime Programs and the International Unit of the Department of Justice’s Money Laundering and Asset Recovery Section.

Development Finance

The National Security Strategy states that “the United States will modernize its development finance tools so that U.S. companies have incentives to capitalize on opportunities in developing countries.” In Congress, the Senate and the House are currently both drafting legislation to revamp the legislative authorities for development finance. “Modernize” is the latest catchphrase for consolidation.

The development finance tools of the U.S. government are dispersed across numerous agencies, including the Overseas Private Investment Corporation (OPIC), USAID’s Development Credit Authority, USAID’s enterprise funds, USTDA assistance, and other smaller, regionally-focused agencies. Streamlining these agencies and dedicating more resources to one central body appears to be a policy proposal that is gaining momentum in Washington.

This proposal could ultimately help address Africa’s infrastructure deficit. From energy access and transportation, to ICT systems and water, Africa’s infrastructure woes are hindering the continent’s economic growth. Closing Africa’s infrastructure quantity and quality gap relative to the developing world and the best performers in the world could increase growth of GDP per capita by 1.7% and 2.6%, respectively. With limited new public expenditures for these capital intensive projects, African governments are relying on alternative forms of financing. A key form of financing for this effort going forward will be development finance.

The idea of establishing a single U.S. development finance institution would benefit American foreign policy and help Africa address its infrastructure deficit. Indeed, such a development would be consistent with the strategy which states: “the United States will not be left behind as other states use investment and project finance to extend their influence.” An appropriately resourced American development finance agency could be a source of much needed financing for African infrastructure projects. With Africa being a stated regional priority for the new leadership of OPIC, the continent could see increased financing activity in the near to medium term.

There are indications that Commerce Secretary Wilbur Ross and Secretary of State Rex Tillerson will visit Africa in the coming months. A robust commercial strategy will be important if there is to be strong U.S.-Africa relations given the recent controversy.

This post can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.